Why do Cryptocurrencies have a bad reputation?
March 11, 2019. CRYPTO is out on theaters. This movie is a thriller that pushes a crypto-laundering narrative and is basically about Russians mafia using bitcoin to fraud money. A lot of comments have emerged by crypto supporters, some of them feeling offended, some others amused by this depiction of cryptocurrencies. Although it may be a sign that crypto slowly introduces itself in popular references, it also shows that cryptocurrencies are in the collective imagination, “the money of the bad guys”.
As you learn more and more about the Blockchain and all its projects, you start to think “Why isn’t everybody using cryptocurrencies? It’s so convenient!”. Well as much as I like the idea of mass adoption, when I talk with friends about it, it doesn’t sometimes seem they’re ready for this technology.
The blockchain looks like the internet in the 90’s
Back in the 90’s, the internet introduced itself to the world. There were advocators that had already a blind faith in what it could achieve, and that truly believed it would change the world and its people. But let’s go back to 1990 for a minute: back then, it was hard to explain this concept. And you know that very often, people fear what they don’t understand.
More specifically it’s hard for the people to trust a new technology like the internet when media tells you it’s possible to find out how to create a bomb, buy drugs and watch very explicit content. Also remember that the dot.com/internet bubble era fragilized the reputation of the world wide web.
Does this ring a bell to you? Yes, it does, because it’s the same bad reputation that cryptocurrencies suffer from: it’s all about hacking, fraudulent techniques, scams and buying illicit stuff from the Dark Net with bitcoins.
The blockchain is somewhat similar to this in the sense that it’s not easy for anybody to understand how this is working. At the present time, we’re still stuck in a position where we have to spend time explaining “what is the blockchain” and “why it is safe and secure” . We need to start pitching new projects, and new protocols and go forward with new applications and regulations.
We’re a not quite in a situation where it’s ready for mass-adoption, although it might change when giants such Facebook and Amazon will launch their coins.
Where does this reputation come from?
“Cryptocurrency is the money of the criminals”.
Although it’s quite inaccurate, it is not false to underline that illegal transaction occurs with bitcoin. Yet in fact, recent studies tend to show that illegal activity is no longer the dominant factor in cryptocurrencies. DEA agents claim “The ratio of legal to illegal activity in bitcoin has flipped…Now, illegal activity has shrunk to about 10 percent and speculation has become the dominant driver.” This goes against the popular belief that crypto are made for illicit transactions.
The most famous story that pushed this bad reputation is probably the one of the Silk Road created by Ross Ulbricht aka “Dread Pirate Roberts”. (If you don’t know the background of the Silk Road, I encourage you to read this.)
On the anonymous marketplace “Silk Road”, bitcoins were compulsory for any transactions. Although it was not entirely anonymous, it offered more discretion for buyers and sellers of the dark net. This case is among the biggest that proved to give bitcoin a rather negative reputation while in fact, it just happened to be the mean of transaction.
There are several others cases like this and it’s probably impossible to accurately state how much of bitcoin transactions are used for illicit activities. Yet truth is that we just need for more regulation and security. Remember that this is not entirely anonymous, the blockchain is public and all transactions are documented in the blockchain.
Today there are more and more procedures required in blockchain platforms (exchanges, wallets etc.). For instance we have KYC (Know-your-customer) processes. KYC is “the process of a business verifying the identity of its clients and assessing their suitability, along with the potential risks of illegal intentions towards the business relationship” so that “customers provide detailed due diligence information.
“Cryptocurrencies are only about scams and frauds”.
A report from Satis Group highlighted the fact that 78% of ICO where identified as scams.
“On the basis of the above classification, as a percentage of the total number of ICOs, we found that approximately 78% of ICOs were Identified Scams, ~4% Failed, ~3% had Gone Dead, and ~15% went on to trade on an exchange.”
Another study from Boston College shows that 50% of blockchain projects were dead within 4 months of ICO. So, it seems true that the Investment frenzy probably did not do good on crypto reputation. But the fault should certainly not lie on the shoulders of the technology, but rather on those who backed these projects without using their common sense.
We can all agree that there’s a need for better business practices, in order to protect and inform investors better. Projects should demonstrate viability, legitimacy and sustainability. At the same time, investor should do their research and stop being delusional about the last “so called” revolutionary and disruptive crypto project they just heard about on twitter. (#HelloCryptoTwitter).
On top of that, from a philosophical point of view, it seems that nowadays people are much more interested in cryptocurrency and trading rather than interested in the blockchain technology itself. To me it appears that the perspective of making a fortune thanks to the “crypto el-dorado” ranks above the perspective of transforming our society and humanity. This maybe where the true problem lies.
“It’s not a safe thing, I could be hacked”
There have been multiple occurrences of hacking related in the press the last few months. Most of the time when it appears in the media available to the general public, it feels like the crypto is not safe. Truth is: It’s tough to hack the blockchain. It’s the exchanges and the wallets that are unsafe because of their centralized characteristics. By extension, blockchain and cryptocurrencies suffer from this bad reputation.
There is a bit of a paradox in this because security is brought by the concept of decentralization (our article here). Yet for a better user experience we accept to put our trust in third-party platforms such as exchanges. These may put at risk the coins we stack there if thery’re not secure enough.
It’s up to the users and participants of the blockchain to be able to put in safety their private and personal keys, use 2FA procedures. Also they have to be more responsible and do a bit of research when they choose to trade/exchange on a specific platform.
Cryptocurrencies: how to build trust and confidence?
To me there’s a bit of controversy and confusion, because it’s easy to forget that crypto is not fundamentally illicit, it’s the people that can use them badly. This is only a matter of reputation, image, and branding. Cryptocurrencies are not “bad” in essence.
I remember reading an article explaining that more than 80% of dollar bills in circulation in the US had traces of cocaine (among other things) . It’s not because bills have been used for illicit activities that the money in itself suffers any form of prejudices. Nevertheless, think about it: money, credit card, ID’s can be stolen, your accounts can be hacked yet you don’t stop using these means of payments, you are covered by insurances etc. I believe that only the progressive introduction of bitcoin, ethereum (and others) into our daily lives could help increasing the positive opinion in the general public.
The paradox is here for me: the key to mass adoption … is mass adoption. In order to get to the point where you have trust and confidence in such payment methods, everybody needs to start using it. I read somewhere: “Once we have integrity in the technology and the trading process then markets will be much safer.”
Having good regulation and diligence is the responsibility of every actor of this industry, because I doubt cryptocurrencies will at some point stop being the target of scammers and people who wants to make money out of other users by deceitful techniques. But as we are leaning towards more security and better understanding of how it works, fraud should be more easier to monitor. Criminals thought they would become untraceable, invisible to the system, which is not true. A 2018 study showed that digital forensic experts working on cybercrime and are able to identify criminal entities judging by their pseudonymous behaviors and link them to real-life identities. Always remember that most blockchain projects are public.
Matt Bisanz, financial services regulatory and enforcement associate at Mayer Brown:
“We still have to put more in place to build confidence, where crimes are rare or have little effect on the consumer. When you get your credit card stolen, you don’t stop using it. It has low impact. Until crypto gets to a similar level, where people are not losing these sums of money, there will always be a question mark.”
I truly believe in the power of the blockchain to transform our society for the better. But even though mass adoption does not seem to be for tomorrow just yet, it’s getting closer and closer. It’s our job, as a community (of miners, traders, businesses, enthusiasts) to collectively prepare and enforce the regulations, rules and best practices we need for a safer use of blockchain technologies. We need to help general public to understand that behind the cryptocurrencies, there is a project. We need them to know what can be achieved and we have to propose mature projects instead of “super hype altcoins” that makes no sense. When people will realize all the possibilities and feel more comfortable with this technology, blockchain will get to the next level.
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